China’s 2015 budget deficit rate higher than declared

March 6, 2015

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China’s 2015 budget deficit rate higher than declared/AFP

By AGENCE FRANCE PRESSE, BEIJING, Mar 6- China’s budget deficit this year will be higher than previously declared as the government boosts fiscal spending in a bid to bolster economic growth, the finance minister said Friday.

Premier Li Keqiang said Thursday in his “work report” to the National People’s Congress (NPC), the country’s Communist controlled parliament, that the deficit would amount to 2.3 percent of gross domestic product, up from 2.1 percent in 2014.

But Lou Jiwei said Friday that a further 200 billion yuan ($31.9 billion) of planned spending was excluded from the original calculation for technical reasons, and incorporating it brought the deficit to around 2.7 percent of GDP, or 1.64 trillion yuan.

That ratio is higher than that of the US, where the Congressional Budget Office, the independent agency that provides economic and budgetary analysis to the legislature, projected in January that the fiscal 2015 deficit would reach 2.6 percent of gross domestic product.

The actual US deficit is far larger, as its economy remains around double the size of China’s.

Japan’s budget deficit for the current fiscal year, which ends this month, is expected to be 5.2 percent of GDP.

A 2.7 percent deficit would be China’s largest since the 2.8 percent recorded in 2009, when Beijing implemented a four-trillion-yuan stimulus to ward off impact of the global financial crisis, according to data earlier provided by Chinese financial outlet Caixin.

“We have to take a moderately expansionary fiscal policy to cushion downward pressures (on the economy),” Lou told reporters at a press conference on the sidelines of this year’s NPC session.

The 2.7 percent ratio “will play a significant role in support economic development and fend off the downward pressures”, he said.

The world’s second largest economy grew by 7.4 percent in 2014, the slowest pace in 24 years, amid headwinds including manufacturing weakness, falling property prices and high corporate and local government debt burdens.

Local government debt, often borrowed from state owned banks through opaque financing vehicles controlled by authorities, is regarded by economists as a rising risk to China’s financial stability.

The National Audit Office put direct local government debt at 10.9 trillion yuan at the end of June 2013.

Local authorities will be allowed to issue a total of 600 billion yuan in new bonds this year, Lou said.

From next year China will ban local governments from raising funds other than through bond issues, according to previous Chinese media reports, a move aimed at containing risks by making such liabilities more transparent.

“The risk of local government debt is generally controllable. We will pay more attention to some areas where the debt ratio is overly high,” Lou said.

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